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Income Tax Rules

The following has been gazetted:-

  1. Income Tax (Accelerated Capital Allowance) (Information and Communication Technology Equipment) Rules 2018
    [P.U. (A) 156/2018]

The above Rules has been gazetted on 5 July 2018 to effect the 2018 Budget proposal for expenditure incurred on the purchase of information and communication technology equipment and computer software packages to be eligible for an accelerated capital allowance.  It allows for an accelerated capital allowance to be fully claimed in four years by a resident in Malaysia based on initial allowance of 20% and annual allowance of 20% with effect from Year of Assessment (“YA”) 2017.

(Click here for our earlier e-announcement for more information)

 

Malaysian Inland Revenue Board (“MIRB”)’s Public Rulings

The MIRB has issued the following Public Rulings:-

  1. 3/2018: Qualifying Expenditure and Computation of Industrial Building Allowances

This Public Ruling explains the tax treatment in relation to qualifying building expenditure and the computation of industrial building allowances.

  1. 4/2018: Taxation of A Resident Individual Part I - Gifts or Contributions and Allowable Deductions

This Public Ruling explains:

  1. gifts or contributions made by a resident individual that are allowable in determining the total income for a YA; and
  2. tax deductions that are allowable to a resident individual in computing his chargeable income for a YA.
  1. 5/2018: Taxation of A Resident Individual Part II - Computation of Total Income and Chargeable Income

This Public Ruling explains the computation of total income and chargeable income of a resident individual who derives income from business, employment and other sources.

  1. 6/2018: Taxation of A Resident Individual Part III - Computation of Income Tax and Tax Payable

This Public Ruling explains the computation of income tax and the tax payable by an individual who is resident in Malaysia.

The Public Rulings are available at http://www.hasil.gov.my [Legislation è Public Rulings].

 

Revised Real Property Gains Tax (“RPGT”) Guidelines

The MIRB has issued the revised RPGT Guidelines dated 13 June 2018 (available in Malay language only) mainly to incorporate changes made to RPGT Act 1976 since the previous RPGT Guidelines dated 18 June 2013 was issued.

In addition, there are also changes made to the administrative procedures, which include the following:

  1. Cancellation of Sale

In the event that the sale has been cancelled subsequent to submission of RPGT return form or payment of retention sum under Section 21B of the RPGT Act 1976, the disposer or acquirer is required to inform the MIRB by furnishing the following:

·       Agreement for the sale cancellation; or

·       Stamp duty refund letter with supporting documents; or

·       Other official documents to substantiate the sale cancellation.

  1. Procedure for Application of RPGT Refund to be Made to the Acquirer

A copy of the ‘Surat Akuan Persetujuan’ duly certified by Commissioner for Oaths stating the disposer’s agreement to refund to the acquirer is required to be furnished to the MIRB. 

Please refer to last page of the RPGT Guidelines for a copy of the sample letter.

The full text of the Guidelines is available at http://www.hasil.gov.my
[RPGT è RPGT Guidelines].

 

 

 

Changes to the Malaysian Tax Incentives following Malaysia’s Commitment in Adhering to the Organisation for Economic Cooperation and Development (“OECD”) Taxation Initiatives

Malaysia in principal has committed to implement and adhere to the Base Erosion and Profit Shifting (“BEPS”) Action Plan.  Under this commitment, Malaysia officially joined the OECD Inclusive Framework (IF) on BEPS as an Associate Member.  The IF emphasises on the 4 minimum standards, namely:

(a)    Action 5 – Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance;

(b)    Action 6 – Preventing the Granting of Treaty Benefits in Inappropriate Circumstances;

(c)    Action 13 – Guidance on Transfer Pricing Documentation and Country-by-Country Reporting; and

(d)    Action 14 – Making Dispute Resolution Mechanisms More Effective.

Action 5 deals with identification of no or low preferential corporate tax rate (preferential regimes) that can be categorised as harmful tax practices.  It focuses on improving transparency through the exchange of information on tax matters and requirement of substantial activities for any preferential regimes. Forum on Harmful Tax Practices (“FHTP”) has identified jurisdictions which provide preferential regimes for mobile geographical services activities related to intellectual property (IP) and non-intellectual property (Non-IP).

Click here to obtain information released by the Ministry of Finance on:

(a)    Tax incentives identified for FHTP evaluation;

(b)    Evaluation criteria; and

(c)    Timelines for implementing Malaysian tax incentives to meet criteria set under FHTP.

The status of the incentives evaluation as of 9 May 2018 are as follows:

Regime

Status

IP Incentives

·     Biotechnology Industry (BioNexus)

·     MSC Malaysia

·     Principal Hub

·     Pioneer Status (High Technology)

In the process of being amended

Non-IP Incentives

·     Labuan Leasing Services

Amended

·     Biotechnology Industry (BioNexus)

·     Economic Development Regions

·     Inward re-insurance and offshore insurance

·     Labuan Financial Services

·     MSC Malaysia

·     Pioneer Status (Contract Research and Development)

·     Principal Hub

In the process of being amended

·     Foreign Fund Management

·     Green Technology Services

Not harmful

·     Treasury Management Centre

Abolished

·     Approved Services Project

·     Malaysian International Trading Company

Out of scope

Updates to MSC Malaysia Regime

Malaysia has suspended its MSC Malaysia tax regime, pending changes to bring it into line with recommendations from the above initiative.  MSC Malaysia status will be awarded only to entities that satisfy “nexus” and “substance” tests, which ensure the MSC Malaysia regime applies only to income arising from activities carried on in Malaysia.

In order to adhere to the timelines imposed by the international standards and to ease transition into the new regime:

  1. No new approvals will be granted for applications for MSC Malaysia Status starting from 1 July 2018, including applications for extension of income tax exemption period or applications to add new MSC Malaysia Qualifying Activities.
  2. Existing MSC Malaysia Status companies with tax incentives may opt for grandfathering i.e. to continue to enjoy the income tax exemption granted for IP income and/or non-IP income under their existing MSC Malaysia Status Conditions of Grant until 30 June 2021 or subject to the new legislation and guidelines coming into force, to move into the new regime and to be subjected to the new criteria/conditions.

However, for MSC Malaysia Status companies which have been granted approval on or after 17 October 2017 for non-IP income and would like to opt for grandfathering, the grandfathering period will end on 31 December 2018.

  1. New approvals and extension of the income tax exemption period will only be considered once the new legislation and guidelines come into force, which is scheduled to be in place by 31 December 2018.

 

Malaysia Investment Development Authority (“MIDA”) Revised Guideline

The MIDA has revised the following guidelines:

1.      Guidelines on Application for Incentive and/or Expatriate Posts for Green Technology

Below are the salient changes to the Guidelines:

(a)    Distinction is made between new and existing company undertaking green technology project (no distinction in previous Guidelines);

(b)    Inclusion of additional eligibility criteria for companies undertaking green technology services activities, which are as follows:

                    (i)      Must provide integrated services; and

                   (ii)      Employ at least 5 full time employees working in Malaysia.

(c)    Company must incur adequate amount of operating expenditure annually in Malaysia to undertake the proposed green services / projects for business purposes where the operating expenditure should include local services for insurance, legal, banking, ICT and transportation, if those services could be sourced from local/domestic service providers.  However, green technology projects for own consumption is exempted from this condition.

Items b(ii) and (c) are the changes to reflect the recommendations of Action 5 of OECD’s BEPS initiatives to impose the requirement of substantial activities on Non-IP incentives. 

Companies that are granted approvals before 16 October 2017 can continue to enjoy the existing incentive without the imposition of the substantial activities requirement until 30 June 2021.  For companies that are granted approval from 16 October 2017 without the substantial activities requirement, they can only enjoy the existing incentive until the earlier of the publishing of new guideline/legislation or 31 December 2018. 

Sources within MIDA have verbally confirmed that a company is required to comply with the new substantial activities requirements and submit its application to MIDA if it wishes to continue enjoying the incentive beyond 30 June 2021 (for company granted approvals before 16 October 2017) or the date of publishing of new guideline/legislation or 31 December 2018, whichever is earlier (for company granted approvals from 16 October 2017).

The Guideline is effective from 1 July 2018 and supersedes the previous guidelines.

Companies given exemption must comply with all conditions stipulated in the approval letter, failure of which may result in the revocation of the tax incentive.

The revised guidelines is available at http://www.mida.gov.my/home/
[Resources è Forms and Guidelines]

 

Extension of Common Reporting Standard Submission Deadline

The deadline for submitting the Common Reporting Standard Report has been extended from 15 August 2018 to 30 August 2018.   There is no further extension thereafter.

Country-by-Country Reporting Registration User Manual

The MIRB has uploaded a guide on the Country-by-Country Reporting registration process for user’s reference.

The user manual is available at http://www.hasil.gov.my
[International è Country-by-Country Reporting].

 

Abolishment of Goods and Services Tax (“GST”)

To formalise the abolishment of GST on 1 September 2018, the GST Act 2014 was repealed.  Based on the GST Act (Repeal) Act 2018, GST registered businesses are required to submit the GST-03 Return for the final taxable period and make payment for the amount of tax due and payable not later than 120 days from the date the GST Act 2014 is repealed, i.e. by 29 December 2018. 

Meanwhile, the Royal Malaysian Customs Department (“RMCD”) has uploaded a Director General’s decision on its website to reiterate that following the repeal of the GST Act 2014, GST registered businesses are not allowed to issue any tax invoice on or after 1 September 2018.  However, if there is any taxable supply which is subject to 6% GST, the business is still liable to account for the GST in its final GST-03 Return

 

Sales Tax and Service Tax (“SST”) go live on 1 September 2018

On 1 September 2018, SST was implemented in Malaysia to replace GST.

Sales Tax is charged on all taxable goods manufactured in Malaysia by a registered manufacturer and sold, used or disposed of by him.  Sales Tax is also charged on taxable goods imported into Malaysia.  Generally, the Sales Tax rate is 10% or 5%, whilst some goods are prescribed to be exempted. There are specific Sales Tax rates for petroleum products.

On the other hand, Service Tax is charged on any taxable services provided in Malaysia by a registered person in carrying on his business.  The rate of Service Tax is 6% with the exception of credit card or charge card which is fixed at RM25.

The RMCD’s official website i.e. MySST (click here) provides various resources relating to SST such as the legislations and Director General’s decisions as well as Guides which are updated periodically to provide further clarifications

KPMG Tax Services Sdn Bhd

Unit Heads   

Tai Lai Kok
Executive Director
– Head of Tax and
   Head of Corporate Tax
ltai1@kpmg.com.my
+ 603 7721 7020

Long Yen Ping
Executive Director 
– Head of Global Mobility Services
yenpinglong@kpmg.com.my 
+ 603 7721 7018

Ng Sue Lynn
Executive Director
– Head of Indirect Tax
suelynnng@kpmg.com.my
+ 603 7721 7271

Soh Lian Seng
Executive Director
– Head of Tax Risk Management
lsoh@kpmg.com.my
+ 603 7721 7019

Bob Kee
Executive Director
– Head of Transfer Pricing
bkee@kpmg.com.my
+ 603 7721 7029